everyone loves to spend money, but getting something of lasting
value is another matter," says the nonprofit Institute of Consumer
Financial Education (ICFE), a San Diego based group. "Spending
money is more exciting, however, when it is carefully planned in
advance because it enables consumers increase value. Spending without
planning usually results in wasted money," the ICFE points
out in its personal finance classes and literature.
Millions of Americans,
young and old, routinely take on expensive, short term credit card
debt in order to purchase goods and services they otherwise normally
cannot afford. Most American consumers are wasting 20 to 30 percent
of their money just because of poor spending habits, such as not
taking the time to comparison shop.
Consider the extent
to which some merchants and credit card issuers will go in order
to entice people to spend beyond their incomes: no fee and low fee
credit cards, instant credit approvals, first time buyer programs,
sweepstakes and contests where chances of winning are increased
with each credit-based purchase, extended manufacturers warranty
programs, replacement insurance and cash-back with purchases.
Some companies encourage
consumers to buy money orders and hold on to them for emergencies
while some bankers encourage consumers with poor or no credit worthiness
to deposit money ($500 - $2500) into their bank in order to secure
a credit card with a 21.99 percent interest rate. In essence, people
are borrowing their own money back at an interest rate of $21.99
per $100 per year.
It is not just credit-based
spending decisions that get people into trouble. Some people who
have either exhausted credit or ruined their credit rating, have
no trouble overspending at all. Cash slips through their fingers
so fast, that at the end of the day, if they started out with $50,
they often have less than $5 remaining. Many people will also have
great difficulty determining, at then end of the day, just where
it was all spent. Remember, an overspender is not just an individual
who spends more than they earn, an overspender is also an individual
who pays too much for things.
Here is how to develop
improved spending Practices:
- Write down your detrimental
spending Practices you want to change.
- Write down how you
plan to bring about the changes in each area.
- Construct a cash-flow
sheet showing income and outgo.
- Set up and implement
- Discontinue all use
of credit cards.
- Begin collecting
and making notes on your cash purchase receipts .
- Review all insurance
coverage for duplication, higher deductibles, etc.
- Begin saving one
dollar-a-day (or dollars) and all pocket change, everyday.
- Look for alternatives
and substitutes to spending.
- Start utilizing cents-off
coupons and mail in for rebates.
- Wait for the sales.
Comparison shopping can save more than 50 percent.
- Take advantage of
seconds, rebuilt and used items where practical.
- Start doing things
for yourself that others were paid to do previously.
- Have weekly meetings
on improving spending with other family members.
- Separate shopping
trips (when comparing prices, value, reparability, etc.) from
spending trips (when actually making the purchase). Avoid carrying
credit cards, much cash or a checkbook on the shopping trips.
For many individuals,
debt is a roadblock to saving money. One easy way to get into the
savings habit and still pay off debt is to begin saving a dollar-a-day
and all pocket change. Be sure to do this even on the weekends.
It will average about $50 a month. At the end of each month, take
the money saved and pay down on a debt. Two positive things have
been accomplished, getting to the savings habit and paying off some
If things have gone
too far and you have become delinquent on some accounts, creditors
are eager to work with people who admit they are in
trouble. Creditors do express their greatest concern, however, over
consumers whose accounts are delinquent and who don't stay in touch.
It is easier to gain extensions by approaching the creditor first,
before the late payments hit, and it demonstrates concern over one's
The moment you become
aware income will be reduced, begin to develop a plan to contact
those creditors who will be affected. First contact should be by
phone, since most have 800 numbers, followed by a letter confirming
your phone conversation. As you continue to convey to creditors
from time to time that you are succeeding in your plan to reduce
outgo and increase income to cover all obligations, most will give
you the time needed to meet the obligation, while at the same time
encouraging you to meet it in the very shortest time possible.
Do not make payment
commitments you cannot honor. Do not tell a collector "what
they want to hear, just to get them off the phone. It only
makes things worse. Be honest, be humble, be in touch. Remember
also, in addition to getting your financial situation in balance,
another goal is to keep credit records free from hurtful bruises
as a result of any temporary indebtedness. Collection agencies also
report to credit reporting agencies once an account has been turned
over to them. Your cooperation with them will make a difference
in what, if anything they report to credit reporting firms.
Steps to take to reduce
- Begin immediately.
(Getting started can be the most difficult.)
- Make up a written
plan of action.
- Determine what amount
you can/must contribute monthly to debt repayment.
- Take on no new debt
including a consolidation loan.*
- Close credit card
accounts by returning charge cards to issuers.
- Maintain written accounting
of all income and outgo, especially cash.
- Begin collecting receipts
to raise awareness.
- Closely examine all
expenses looking for ways to increase value.
- Put all extra income
towards paying off debts.
- Start doing things
yourself and do not pay for services.
- Make all necessary
sacrifices to eliminate debt.
- Sell items that are
losing value especially those with debt owing
- Make getting out of
debt a family affair.
- Contact creditors
to keep them informed and ask for temporary reductions in payments.
- Utilize cents-off
coupons wherever possible. Send in for rebates.
- Critically review
spending Practices and habits.
- Make comparison shopping
- Once a debt is paid
off, DO NOT reduce amount of #3 above, pay off other debts faster.
* A consolidation loan
may be workable ONLY if the loan interest is less than the interest
on the debts to be retired AND paid-off charge accounts are closed
AND the extra cash-flow is put towards paying off the consolidation
loan even faster. Otherwise in a year or two many people who only
pay off and not close accounts are often paying off a consolidation
loan and also new credit purchases.
The ICFEs course
in personal finance is known as "The Money Instruction Book
has 14 chapters with quizzes. The course is available in classroom
and home study versions is $29.95 plus $4 postage. The Instructor's
Guide is $34.95 plus $4 postage. Send to: ICFE U.S. PO Box
34070, San Diego, CA 92163-4070.
Send a stamped, self-addressed
ICFE Home Study Course
PO Box 34070
San Diego, CA 92163-4070.
Or order online at www.financial-education-icfe.org.
Contact Paul S. Richard 619-239-1401 or firstname.lastname@example.org
About the ICFE:
The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation). The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely.
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.
The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org). CASDRAP disbanded in 2010, shortly after the web site project was completed. In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.
The ICFE is also an on-line help for consumers who spend too much. ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.
Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org. Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G, a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.